14: TPR’s plans for the future of trusteeship and governance: the importance of TKU
On 10 February 2020, The Pensions Regulator (TPR) published its response to its consultation on the future of trusteeship and governance. The response is relevant to trustees and pension managers across defined contribution (DC), defined benefit (DB) and public service schemes. It serves as a reminder of the importance for trustee boards to ensure they have the necessary knowledge, understanding and skills to promote good scheme governance.
TPR recognises that the law governing pension schemes and the risks they face has changed drastically over the last decade. It has committed to a review of the TKU Code of Practice and Trustee Toolkit to ensure the TKU requirements support appropriate safeguarding and protection of members’ interests. It will simplify how TKU is presented to ensure trustees can clearly identify what is applicable to them as well as introducing ESG content and updating the Toolkit’s functionality.
However, TPR has decided not to introduce formal qualifications to demonstrate compliance with the TKU Code of Practice. Instead it will set out a range of acceptable ways to demonstrate TKU, including the Trustee Toolkit, work experience and other relevant industry-based training. TPR will also consider whether to introduce indicative hours to demonstrate TKU compliance, such as 15 hours per year for lay trustees and 25 hours per year for professional trustees.
TPR believes that diverse trustee boards make better decisions. It will establish an industry working group (initially led by TPR) to explore diversity and how schemes can improve the diversity of their boards. The intention is to raise awareness of the benefits of diversity but TPR is not ruling out a requirement to report on the diversity of trustee boards in the future if there is not sufficient engagement by schemes.
TPR has also moved away (at this stage) from the proposal that all trustee boards have a professional trustee. It recognises this may not be feasible given current market capacity and instead hopes that the development of the Association of Professional Pension Trustees (APPT’s) standards for professional trustees and the accompanying accreditation process, will provide ‘greater confidence’ that professional trustees meet the necessary standards and that TPRs initiatives will improve governance generally.
Despite TPR’s concerns regarding sole trustees, there will currently be no changes to TPR’s regulation in respect of them. Instead TPR has expressed its support for the APPT’s development of an industry code for sole trusteeship as a way of improving standards. However, it will keep this area under review and commission more research into sole trusteeship.
DC scheme consolidation
TPR continues to see DC scheme consolidation as a way to improve DC governance by moving more savers into bigger, better run schemes in the long term. The consultation looked specifically at ways to deal with DC schemes where members benefit from a guarantee but TPR expressed its intention to continue monitoring DC consolidation more generally and to collaborate with both the pensions industry and the DWP in order to identify and overcome barriers to consolidation. However, TPR has stated they will not take a ‘blanket approach’ to consolidation, where a scheme is performing well and can demonstrate good value for members, they would be no expectation for trustees to consolidate.
We have advised a number of DC schemes and DC sections of hybrid schemes (including sections holding only old protected rights pots) on the transfer of liability to DC consolidation vehicles, such as master trusts, with a view to improving governance for members and reducing the governance burden for the business.
TPR continues to focus on setting the direction of travel for pension schemes rather than imposing strict requirements.
Trustees should continue to follow recent developments, participate in trustee training and seeking advice from professional advisors, to ensure best practice and good scheme governance.
We will continue to offer training on pension matters generally and on any specific issues that your scheme may be dealing with.